Zillow unveils real-time home values service

Online startup's tool will estimate worth of properties

JOHN COO, Seattle Post-Intelligencer

By JOHN COOK, P-I REPORTER

Published 10:00 pm, Tuesday, February 7, 2006

Rich Barton, former Expedia CEO who now heads online startup Zillow.com, says Zillow will transform the real estate business by providing real-time home valuations across the country.
Photo: Joshua Trujillo/Seattle Post-Intelligencer

After more than a year of keeping tight wraps on his heavily funded startup, former Expedia Chief Executive Rich Barton today will disclose how his 75-person company, Zillow.com, plans to transform the multibillion-dollar real estate business.

The idea: Place a real-time value on homes throughout the country.

"We think you shouldn't need a computer science degree or a real estate license to find out what a home is worth," said Barton, who hopes to do in real estate what he already accomplished in online travel.

With an assessment known as a Zestimate, Zillow.com takes into consideration historical property information, square footage, number of bedrooms, neighboring homes and other factors to determine estimated values of 42 million of the 85 million residences in the United States. It then overlays that information on aerial and satellite maps, so home shoppers from Miami to Seattle can get a better idea of the market value of homes in those cities.

Zillow.com's free service is not foolproof, and Barton admits that the home valuation tool is very much in the early stages of development. For example, Zestimates for homes in Washington, D.C., are not available because the nation's capital does not collect historical property transactions.

Large pockets of New York also are not served by Zillow, as is the case for most of Idaho.

Compiling the data -- most of which reside in paper form at county offices -- has been a monumental task, Barton said.

"The data is as good as we can get it, given the way we are collecting it and the amount we are sharing," he said. "We are going to put it out there because it is too much fun to hold back, but we know full well that we are not like Moses taking the tablets from the Lord and handing them down."

The national historical margin of error for the Zillow technology is 7.2 percent, though markets with higher-quality data such as Denver and San Francisco produce error rates in valuations below 5 percent. Those figures still may seem high for a transaction as large as a home purchase. After all, 5 percent of a $400,000 home is $20,000.

But Barton, whose company uses proprietary algorithms to come up with the home values, said getting within 5 percent of the value "is probably as good as anybody is going to get."

Real estate professionals disagree, saying that an experienced agent who knows a specific neighborhood can do a better job of assessing a home's value.

J. Lennox Scott, chairman and chief executive of John L. Scott Real Estate in Seattle, said agents can identify market nuances that a computer model will never find.

"It is not a click of a mouse by any means," said Scott, who was briefed on the Zillow technology earlier this week. "It takes a professional."

Even so, some who are familiar with Zillow said the company has done a good job of culling data from numerous sources and presenting them to home buyers and sellers in a compelling way.

In addition to using the home-valuation tool, home buyers and sellers can chart historical value changes of a home over the past year, five years or 10 years. That information can then be plotted against data on other homes in that ZIP code or city.

It is also offering a tool called My Zestimator, which uses data from Remodel magazine to allow home buyers and sellers to recalculate values in case of a major remodeling or landscaping project.

Longtime technology analyst Esther Dyson, an editor at CNET Networks, said Zillow's pattern-recognition technology "democratizes" the real estate industry by opening up information that is not usually accessible.

"What real estate agents always knew, now anybody can find out on Zillow," Dyson said. That could raise the hackles of consumer groups that may have privacy concerns about the use of the data, she said.

It also might not sit well with real estate professionals, many of whom justify their commissions by providing the types of services now offered through Zillow.

But Mike Rahmn, vice president of technology at Windermere Real Estate, who got an inside look Monday at the Zillow service, doesn't think it will harm his company's 8,000 real estate agents.

Some have speculated that services such as Zillow could bring so much power to the consumer that they will eventually diminish the role of agents, eventually cutting into their 6 percent commissions.

"Your commission is a function of the value perception," Rahmn said. "And if your value perception is that all you are is a gatekeeper to information, then we have a much bigger problem in real estate."

"It is interesting data, but it is expensive to collect," Rahmn said, adding that it can be obtained through brute effort. "If the consumer tells us that this is something they want in the context of their search, we will look at ways to go in that direction."

The Zillow concept is slightly different from online real estate services such as HomePages, Redfin and Trulia, which along with historical property information also list homes for sale. For now, Zillow does not show for-sale listings.

However, Barton said, that could be a logical advertising component to the service -- allowing real estate agents to list homes on the site for a fee. Banner advertisements and text-based advertising from Google also will be an important revenue generator.

Barton said the site will launch with about a dozen advertisers, though executives at John L. Scott and Windermere said they have not made a decision about participating. The Kelsey Group reports that online real estate advertising is expected to grow from a projected $294 million this year to $563 million by 2010.

In many ways, Zillow.com looks most like New York-based PropertyShark. The 10-person startup compiles detailed information on 20 million properties in 16 major markets, though it makes money through monthly subscriptions rather than advertising.

Still, the similarities between the two services was not lost on PropertyShark executives Matthew Haines and Ryan Slack, who issued a statement Tuesday saying that "computer-based automated valuations, such as those you will likely see at Zillow, are more likely to be wrong than right." It went on to say that Zillow is out to "disintermediate the broker and real estate salesperson."

Zillow spokeswoman Amy Bohutinsky said that statement is false and said the company wants to attract real estate professionals to advertise on the Web site and enable consumers to have a more informed conversation with agents.

The PropertyShark executives have reason to worry about Zillow, something they readily admitted Tuesday in an interview.

"When me met Rich (Barton), the first thing he said when he found out I was CEO of PropertyShark was, 'Oh, I love PropertyShark.' That was not the greatest thing to hear, said Slack, who preferred that he had not heard of the service.

Barton calls PropertyShark "innovative," but said Zillow is different because it filters and organizes information for consumers instead of using the "encyclopedia" approach of his competitor.

Haines said Zillow is kind of like Wal-Mart entering the territory of a small retailer.

"This is just a fact of life that Zillow has come to town and they are bigger than us, so we are going to find niches that we can serve better and we are going to try to offer higher quality, greater depth, fresher data and things like that," he said.

"If Zillow can get data within six weeks of a sale, we are going to send people straight to the county clerk and get it the day that the document is recorded."

The Zillow service also poses threats to Redfin, a tiny Seattle startup that incorporates maps, historical property data and other information.

Redfin Chief Executive Glenn Kelman said his company considered developing an online home-valuation tool, but it wasn't the highest priority. Instead, Redfin earlier this week unveiled a discount brokerage service that helps potential home buyers prepare an offer, negotiate terms and coordinate closing costs.

Kelman said that most in the industry don't view a home-valuation tool such as the one from Zillow as "an earth-shattering, game-changing approach to real estate."

"I don't want to discount it. It is a good angle. It is a good hook. And we would probably do it when we can," Kelman said. "It wasn't at the top of our list because people do want to just see the raw data."

The launch of Zillow.com ends months of speculation by journalists, bloggers, real estate professionals and others who wondered how Barton, who helped transform the online travel business while at Expedia, would attack real estate.

The publicity, along with the $32 million in venture capital financing, has elevated expectations. That's something Barton is aware of.

"The hype that has been built up ... has been driven off stuff that we have done in the past," said Barton. "Whatever happens short-term is short-term. The long-term opportunity is massive."